It can be an uncomfortable subject, but death is one of the few certainties in life. However, the irony is that this somber event can occur suddenly and unexpectedly.
When a loved one passes, family members are sometimes left scrambling to tie up loose ends on behalf of the newly deceased individual. That may even mean paying off some outstanding debts.
So, if a condo or HOA community member passes, and they have outstanding debts, is someone still expected to pay them off? And should associations bother to pursue these types of debts? Keep reading to get answers to these questions.
Table of contents
- What happens to debt after death?
- What if the estate doesn’t cover the debts?
- Will the association get paid?
- What happens when payments are not made voluntarily?
- One more reason to update owner information
What happens to debt after death?
Most debt is not passed on to a person after a friend or family member dies unless they have co-signed for a loan, credit card, have joint ownership of a property or business, or live in one of the nine community property states. Instead, debt goes to the estate.
During probate, the process of distributing assets left by the deceased, an executor of the estate will typically pay off debts first using the estate’s assets (however, some states may require that survivors be paid first).
The executor must give notice of the person’s death to creditors. Timeframes vary by state, but creditors generally have three to six months to make claims to be paid.
Federal student loans are usually forgiven at death.
What if the estate doesn’t cover the debts?
If an estate does not have enough assets to cover debts, then it is considered insolvent. The good news is that creditors may forgive the debts that the estate cannot cover.
Furthermore, debt collectors are held to the Fair Debt Collection Practices Act (FDCPA) and can’t harass surviving family members to pay debts they don’t owe.
In most cases, family members don’t have to pay anything out of pocket, but they won’t receive any inheritance money either.
A debt priority order is established when an estate is insolvent. While different states have different laws, it’s common for debts to be settled in the following order:
- Estate taxes and legal fees
- Funeral and burial expenses
- Outstanding federal taxes
- Outstanding medical debt
- Outstanding property taxes
- Outstanding personal debt
Will the association get paid?
If there were outstanding debts, the association will likely get paid. But money shouldn’t be the first thing you bring up if you are trying to contact a family member of the deceased individual. This is likely a very difficult time for the family; offer them condolences and respect first.
Set up a meeting
After 10 to 14 days have gone by, the board can respectfully set up a meeting with the family or executor to discuss association matters, if necessary. Don’t wait longer than a month though as it can become equally challenging to work collaboratively with the family if too much time has gone by.
Keep in mind that the person who has inherited the estate may have no idea how much monthly fees are, or that there are outstanding fees that need to be paid. A meeting will help to get both parties on the same page. Furthermore, it provides the new owner with an opportunity to ask questions about the property or the community.
Follow normal collection processes (some leniency is okay here)
Though it sounds a bit callous, nothing really changes for the association when it comes to death and dues. That’s because the rightful heirs or beneficiaries of the estate will take title through the will, or by operation of law, and any assessments, mortgage, taxes, and other financial responsibilities will transfer to the new owners as well.
If there were unpaid dues before the owner’s death, the association is within its legal right to file a lien and/or foreclose on the home, pursuant to statutory procedures.
The executor cannot use the estate to pay for fees and expenses that occur after the death. The new owners will be responsible for all payments moving forward, even if they are not living in the condo or house.
Most communities will avoid placing a lien if possible. Instead, under these circumstances, boards may consider giving new owners more time than usual for payments. After all, they didn’t anticipate taking on all of these new responsibilities.
As mentioned earlier, inform the new owners about the community’s assessments and when payments are due. If you have a manager, they can prepare the necessary paperwork and account statements to ensure the transition is smooth and successful.
What happens when payments are not made voluntarily?
If the association is unable to connect with the deceased owner’s family or executor, the association should proceed with placing a lien on the property and starting the foreclosure process.
This should only be done one to two months after the death has occurred. The association should be able to demonstrate that it has made multiple efforts to find or speak to the deceased owner’s family. The executor can make a notice of probate, or the board can make a notice to the public.
If the owners have been contacted but are unable or unwilling to pay outstanding debts or keep up with current assessments, the association can place a lien on the property and eventually start the foreclosure process. It may also be possible to make a claim against the estate as a creditor for monies owed. However, making a claim for monies owed against a deceased person requires an open probate action in superior court.
One more reason to update owner information
Condos and HOAs should have up-to-date, digital owner records or directories, which include email addresses, phone numbers, and emergency contact information for each member.
Why digital and not paper? Paper records are hard to manage and tedious to update. Plus, they are not easily accessible when they are locked up in management’s office. Having records online means that can be viewed from any computer with an internet connection, and it’s far easier to locate a name when you can conduct a quick search as opposed to flipping through files.
Not only does having a current database make it easier to communicate with your community, but if there is ever an emergency or death, it’s good to know that the board or manager can find an emergency contact in a few seconds.
For this system to really work well, the association should ask owners to update their information on an annual basis.
Conclusion
Collection proceedings against deceased owners can be both complex and uncomfortable. However, it’s something that condos and HOAs need to be prepared for, especially in communities with aging populations.
If the board is uncertain about how to proceed once an association member has passed, they are encouraged to contact their attorney to ensure proper compliance, and to avoid missing important statutory deadlines.